Author Peddles Dystopian View of Business, Competition

Published May 31, 2016

The Master Switch: The Rise and Fall of Information Empires by Tim Wu. Random House Publishing, 2010, 366 pages.

Reading Tim Wu’s The Master Switch, one can’t help but conjecture the author and Columbia University professor looks under his bed each night to ensure no transactions are taking place wherein one party actually derives a profit. If they are, he cries “Monopoly!” in the same way a frightened child would cry out for his mother in the middle of the night.

Perhaps in his childhood he was terrified by a man with a handlebar mustache wearing a monocle and top hat.

By contrast, I respectfully assert that every time a company succeeds against unfettered competition and government regulation, an angel gets its wings. I know it’s a stretch, but it makes more sense to me than dropping the “M” bomb whenever a company gains a competitive advantage.

Views Business as Crass

In The Master Switch, Wu attempts to bring perspective to the last 150 years of information and telecommunications history by documenting missed opportunities, shortsightedness, genius, and, yes, frequent failings of acumen displayed by the giants of telegraph, telephony, film, radio, television, and the Internet. In every instance, Wu argues the innovative geniuses at the heart of each technological revolution pandered to the lowest common denominator of a crass American public in pursuit of the almighty dollar.

According to Wu, when a business succeeds where its competitor does not, it’s because the rules weren’t fair and the public is oblivious to the evils perpetuated upon them .He simply presupposes the success of any particular business is the result of nefarious processes.

Yet competition, by its very nature, guarantees one party will rise above its opponents—if only temporarily, until something, someone, some better service, some better product—knocks it off its perch. This is what the Austrian economist Joseph Schumpeter meant when he labeled the process “creative destruction”—not, as Wu would have it, a glass-half-empty philosophy turning all-American towns into ugly dystopias.

As Frank Capra’s Mary Bailey might’ve put it: “Trouble is, Professor Wu, we’re still in Bedford Falls, and you think we’re in Potterville.”

Remedies for Chicanery

Certainly the nation’s past is full of business and political chicanery. The first is best handled by allowing the market, clearly understandable law, a light regulatory touch, and, as last resort, the courts to rectify the ills. The latter, however, is truly a breach of the trust a public places in its elected officials and their respective appointees.

Even Wu acknowledges government-instituted barriers of entry, detailing, for example, how the Federal Communications Commission protected the Bell telephone “monopoly” by playing devil’s handmaiden to its persecution of the Hush-a-Phone company between 1948 ad 1956.

The small company, Wu explains, developed and marketed a “silencer” consumers could attach to telephone handsets to ensure increased privacy from potential eavesdroppers. AT&T threatened customers contemplating the purchase and use of Hush-a-Phone with termination of their telephone service on the grounds the device violated a federal tariff. Wu writes, “In 1950 the FCC decided to hold a trial (officially a ‘public hearing’) in Washington, D.C., to consider whether AT&T, the nation’s regulated monopolist, could punish its customers for placing a plastic cup over their telephone mouthpiece” (p. 110).

Favoritism Toward AT&T

The FCC, Wu writes, sat on the case for five years before deciding for AT&T. The Washington DC Court of Appeals reversed the FCC’s decision, reproached the commission for taking five years to render a determination, and affirmed a customer’s “right reasonably to use his telephone in ways which are privately beneficial without being publicly detrimental” (p. 123). Astute readers may recognize the parallels from this past April when the same court ruled the FCC had no authority to impose network neutrality on cable and broadband provider Comcast.

AT&T is too easily depicted as the Mr. Potter in Wu’s Capraesque melodrama, abetted by the FCC as doddering Uncle Billy intent on defending its initial protectionist role. Poor George Bailey is played by Hush-a-Phone’s Henry Tuttle, the little man vindicated by Court of Appeals angel Clarence.

What Wu fails to grasp, however, is had the government not bestowed its noncompetitive regulatory blessings upon AT&T in the first place, Hush-a-Phone just might’ve been Ernie Bishop, the successful Bedford Falls cab driver. When Uncle Billy shows up three-pints in, nothing but mischief can result, including stifled investment, job creation, and technical innovation wrought by regulatory uncertainty.

Market Realities, Government Intrusion

We’re not just talking about the Bedford Falls Savings and Loan here, folks.

Wu acknowledges this in his discussion of the Taft administration’s investigation of AT&T practices: “We see for the first time something that will occur again and again in the state’s calculated exercise of discretion over whether to bless or destroy the monopoly power, deciding in effect what industry it will allow to be dominated.”

In short: Government assumes the power to select winners and losers in the marketplace, ostensibly under the guise of leveling the playing field. But the playing field can never be level. There’s always an earlier riser, a faster gun, better long-distance service, and better advertising and product placement, plus the gamechanging elements economists call externalities, over which players often possess little or no control.

That’s the reality of market competition, not monopoly, Professor Wu. And it’s truly a wonderful life.

Bruce Edward Walker ([email protected]) is managing editor of  Infotech & Telecom News.